CHAPTER 2...Digital media and the impact on the buying process. Slides 29. It is important consider the different stages in the buying process and it is worthwhile reviewing each of

20 © Pearson Education Limited 2019

CHAPTER 2

Online marketplace analysis: micro-environment One sentence overview

Explores how the actors in the micro-environment influence digital marketing planning.

Notes on using slides for the second chapter in lectures – lesson plan

1. Online Market place analysis: The micro-environment. Slide 21 shows an overview of key topics covered in this chapter.

The purpose of this chapter is to identify the elements in an organisations environment, which has implications for digital marketing planning. To explore how to review the importance of different players in the micro environment: customers, competitors, publishers, intermediaries, suppliers and competitors. To consider business and revenue models enabled by digital markets. By the end of the chapter students should have a greater understanding of the importance of the microenvironment and how it might influence digital marketing strategy development.

2. Marketplace analysis. Slide 22. Discuss the online marketplace map diagram (Figure 2.1) from left to right using an example of a particular type of business (eg., a bank or a retailer, a car manufacturer).

3. Understanding customer in digital markets: Slide 23 introduces the different types of customers, which might be considered as part of the market place analysis. It is important to remind students that while often consumers are the main focus of discussions there are other types of customers and destinations online which form the online marketplace. Customer journey mapping: it is important to explore the connections between physical and digital market places. Slide 24 (Figure 2.2) shows an example of a customer journey revealing digital and physical touchpoints. Customer journeys vary depending on the profiles of individuals in selected target markets.

4. Online marketplace map: Slide 25, Figure 2.3 this type of mapping can be used to help summarise the influences on a customer journey. Key point it to highlight that companies need to assess potential online media and distribution partners. For further discussion see pages 53–54. The online marketplace map also shows the complexities of the digital trading environment from the customer segments – through search intermediaries, other intermediaries and media sites to destination sites.

5. Conversion model between the digital channel and traditional channel during the buying process. Slide 26, Figure 2.4 shows Conversion modelling (advanced) and can be used to explain the need to assess demand for use of different services and then to create a conversion funnel model. Key point: the focus has moved away from online marketplace analysis towards the customer. Analysis of customers online, the content they engage with, the channels the use is central to creating successful digital marketing campaigns. Online customer behaviour is highly trackable so it is important to understand the stages in the conversion process in relation to different channels. See pages 56–60 for further discussion.

Chaffey and Ellis-Chadwick, Digital Marketing, 7e, Instructor’s Manual


6. Customer Choice and digital influence. Slides 27 introduces the key topics, in the text Figures 2.7 and 2.8 on page 62 show how customer tend to behave when they first use the web and how they might limit their searching to product information; and the influences on consumer shopping online. Slide 28 shows Figure 2.9 Framework for understanding online customer experiences. This model highlights more generic consumer behaviour traits but also seeks to show these behavioural traits are important online. Pages 64-65 provides more detailed discussion of this model.

7. Digital media and the impact on the buying process. Slides 29. It is important consider the different stages in the buying process and it is worthwhile reviewing each of the stages in relation to digital media consumption. Pages 67 to 69 discuss each of these stages.

8. Competitors. Slides 30 introduces competitors and discussion to accompany y this slide should seek to cover the nature and shape of competitive markets. Pages 69 to 73 discuss Porter’s five forces in the digital context and competitor anlaysis and benchmarking.

9. Intermediaries. Slides 31 focuses on suppliers and intermediaries. Ask students to identify different types of intermediaries or portals. Different types of intermediaries were introduced earlier in the chapter in the section on marketplace analysis. Best to introduce in context of business and revenue models that are covered in the next section. Intermediary models. Cover value chain analysis, disintermediation, reintermediation and countermediation, See New channel structures. Slides 32.

10. Digital business model for e-commerce

Slide 33 and Figure 2.14 focus on the importance of having a clear business model in the digital world. When moving part or all of a business’s operations online, it is important to refine existing models and to incorporate new opportunities. The business model canvas developed by Osterwald and Pigneur (2010) is a useful framework to use to carry out this evaluation. The points to highlight from the canvas are:

• Value proposition

• Customer segments

• Customer relationships

• channels

• key partners

• Activities

• Resources

• Cost structure

• Revenue streams

Slide 34 Figure 2.15 shows an Alternative perspective on business models. The three perspectives are: (1) Marketplace positions; (2) revenue model; (3) commercial arrangement.

Figure 2.16 on page 82 in the text shows a revenue model spreadsheet.



Mini case study 2.1 Alexa, what’s the weather for today?

This mini case explores the growing Amazon eco-systems, its latest innovations- the voice activated speaker system Alexa and raises questions about how digital affirms might use and grow their ecosystems. Key point: importance of environmental analysis for identifying emerging markets.

Mini case study 2.2: Creating great cross-channel customer experiences

This case explores creating successful cross channel experiences and highlights the importance of understanding customer touchpoints. Examples from Epiphany a digital search-based agency shows connections between using mobile phones and visits to physical stores. Time of day and web site speed are also found to influence customer experiences. Key point: it is important to go beyond looking at the channel itself to understand customer use and customer journeys.

Mini case study 2.3: Personas ‘with wings’

This case explores personas using Red Bull as an example. Key point: It should become possible to develop a persona using different variables enabling digital markets to develop campaigns which empathise with the needs, wants and interests of the target audience.

Mini case study 2.4: Alibaba™ provides a global market for all

This case explores e-commerce market places and Alibaba. Look at the development of this global platform. Key point: Competition online can emerge from any part of the globe.

Activities

These activities are designed to encourage students to engage with the materials in the chapter but also to explore beyond the book as desk research.

Activity 2.1: Using digital research tools to assess variation in online demand by sector

Purpose

To explore the value of digital research tools in assessing variation in consumer preference for online purchase.

Activity

Using the resources listed in Table 2.1

1. Share examples of searches from different sectors and use Google Trends or Keyword Planner to understand long term trends and seasonality for different product categories.

2. Clothing and footwear sectors show positive growth. Suggest why this might be and whether this trend will continue for the next five years.

3. From your use of research tools, make a list of the limitations of the data and information you have been able to access



Activity 2.2: LinkedIn: making professional connections

Purpose

To consider the business potential of online networks.

Activity

Businesses rely on their connections to other businesses and key individuals to develop their businesses. In 2002, Reid Hoffman had an idea, which he turned into the largest professional network in the world: LinkedIn. Today there are over 500 million professional individuals signed up to the network in 200 countries worldwide and in 24 languages.

Now answer these questions:

1. Find three examples of businesses that are using LinkedIn to access their target markets.

2. For each of your chosen businesses outline their different digital market strategies.

3. For each of your chosen businesses, explain the extent to which you feel the strategy worked.

Activity 2.3: Revenue Models at marketing membership sites

Purpose

To illustrate the range of revenue-generating opportunities for an online publisher. This site looks at three alternative approaches for publishing, referencing three different types of portals.

Activity

Visit the International Telecoms Union, free statistics section (http://www.itu.int), and find answers to these questions.

1. Which regions of the world have the highest and lowest number of Internet users as a proportion of the total population?

2. Which regions of the world have the highest and lowest number of mobile users as a proportion of the total population?

3. What are the implications for a digital strategist in a large organisation?

Digital Marketing Insights 2.1 Resources for analysising the online market place

This DMI provides resources, which students can visit, explore and use for market place analysis tasks

Digital Marketing Insights 2.2 M-shopping can be thoughtful, motivated and reluctant

This DMI highlights how M-commerce is growing in Africa, Latin America and how this technology is filling a need, using wireless internet access. Three distinct types of shoppers are also identified.



Digital Marketing Insights 2.3 How do your customers really feel?

This DMI introduces a research tool, which has been developed by analysing social media posts and can be used to determine the mood of a group of people online. Emotive has been used at major sporting events, and even in the US presidential elections to determine emotions and moods in real-time. This is a potentially powerful tool, which could be used in many different ways by digital marketers.

Case Study 2: Boo hoo – learning from the largest European dot.com failure

Questions

1. Discuss which strategic marketing assumptions and decisions led to Boo.com’s inevitable failure?

2. Compare and contrast the marketing strategy of Boo.com with successful online travel and leisure retailer lastminute.com (also founded in 1998) and suggest what made the difference between success and failure.

3. Use the framework of the marketing mix to appraise the marketing tactics of Boo.com in the areas of Product, Pricing, Place, Promotion, Process, People and Physical evidence.

4. In many ways, the vision of Boo’s founders were ‘ideas before their time’. Give examples of the e-retail techniques adopted by Boo to create an engaging online customer experience that are now becoming commonplace.

Answers

1. Which strategic marketing assumptions and decisions arguably made Boo.com’s failure inevitable? Contrast these with other dot.com era survivors that are still in business, for example, last minute.com.

Boo.com lacked the expertise, resources and capabilities to make a successful launch in 18 countries simultaneously. The founders had created a successful online book business in Scandinavia, but Boo.com was a much more complex operation.

Additionally, the underlying technology infrastructures were not in place and the ‘aspirations’ of the management team for the functionality of the website were way beyond the ‘know-how’ of developers at the time.

Ultimately, Boo.com did not have a coherent strategy and so rather than building a scalable business that could grow over time they aimed to build a global business overnight. The company benefited from the high demand for high-tech stocks, which allowed money to constantly be pumped into the business. However, once the company demonstrated its inability to deliver, the launch date for the website was constantly put back. The failure to deliver on time linked with the stock market crash contributed to the fact that it was almost inevitable that the business would fold.

In contrast, other businesses were making more scalable and sustainable plans. Companies like Tesco.com and new pureplays like Last minute.com are examples of businesses that looked at the potential in the marketplace and developed both sustainable and scalable solutions.



2. Use the framework of the marketing mix to appraise the marketing tactics of Boo.com in the areas of product, pricing, place, promotion, process, people and physical evidence.

4 Ps – Product, Pricing, Place and Promotion

Boo.com wanted to offer a product range of branded goods to the 18- to 24-year-olds who were both fashion conscious and had good incomes. In essence, this approach was OK if the size of this target group at the time of launch was not as extensive as predicted and there were still many barriers to shopping online both for this group and other potential targets. This made a heavy demand on the promotional budget as Boo had to launch a new shopping concept; establish credibility for the brand and reinforce to the target audience that it was ‘OK’ to shop online. Boo failed on the logistic side, and there were many problems associated with logistics throughout the supply chain. Goods were delivered late and returns were mishandled.

The extended service mix

Shopping with Boo was a laborious process. Physical evidence: the user interface had many graphical features which meant slow download speeds and was not seen to be user-friendly. When it is working, the online environment created by Boo was sophisticated and offered many of the interactive features that shoppers were looking for; however, this was not the case for much of the time. Furthermore, many shoppers did not have broadband and as a consequence could not enjoy any of the benefits. Process: the shopping process did not work in a streamlined way and there were many angry customers. People: the website used JavaScript and Flash technology to allow Miss Boo, a sales-assistant-style avatar, to assist shoppers, but this did not work very well especially when using a 56k modem and dial-up connection.

More specifically, the marketing mix is covered in Chapter 5, so this part of the question should only be set if this concept has been covered previously.

Details of the marketing mix that relate to Boo.com are as follows:

• Product. Premium brands were used, leading to premium prices. Unclear on mix between sportswear and high street fashion. Scope relatively narrow, limiting target audience.

• Price. As mentioned in the case, there were issues of pricing in different regions. No mentions of discounting are made, consistent with the brands’ premium positioning. However, competitive selective promotions are today commonly used by many e-retail brands.

• Place. Boo.com had a worldwide distribution, which was good for achieving reach, but added to the cost-base of the company, impacting on promotion. A global launch of a new brand was ambitious and can be contrasted with the more conservative approach from the likes of Amazon and eBay.

• Promotion. To build the Boo brand and drive visitors, it was reliant on online advertising, which gave rise to a high cost per customer acquisition that ultimately led to the brands failure. The use of PR was more effective and is one of the successes of Boo. The magazine appears overambitious and did not pay for itself through sales generated. At the time, the promotion through online marketing techniques such as search engine advertising and affiliate marketing techniques was limited in its possibilities. Today, these are more effective for companies.



• Process. People and physical evidence. It is well known that the technology was too advanced for a time when the vast majority was accessing the web over dial-up modems. This led to a ‘clunky’ experience that resulted in the low conversion rates referred to in the article. It also seems likely that the cost of providing customer service was not factored into the business model.

3. In many ways the vision of Boo’s founders was ideas before their time. Give examples of the e-retail techniques used to create an engaging online customer experience which Boo adopted and is now becoming commonplace.

When boo.com collapsed, the company left a legacy of the underlying e-commerce technology. This was bought for £250,000 by Dan Wagner, which enabled him through his company Bright Station to create an e-commerce solution package, which runs many of today’s successful online retailers’ web operations. The 3D images of products, sales assistant avatars and multiple country online stores are examples of some of the features of Boo.com operations that have now become commonplace, for example, IKEA for online sales support through their ‘Ask Anna’ facility.

Self-assessment exercises

1. Explain the components of the digital market environment.

The e-marketing environment consists of a multi-layered trading arena which is made up of (a) macro-environment – external forces, for example, political, legal, environmental, technological and social influences, which affect a company but are largely beyond influence and (b) micro-environment, which is predominantly made up of actors that can influence and be influenced by a company, for example, customers, competitors, suppliers and intermediaries.

2. Suggest reasons why is environmental scanning necessary.

At the macro level, it is important to understand new constraints such as legal and technical constraints on conducting business. These may also present opportunities. At the micro level, it is important to be responsive to customers’ needs and competitors’ actions.

3. Summarise how each of the micro-environment factors may directly drive the content and services provided by a website.

At the micro-environmental level, suppliers, competitors, intermediaries and customers have influence over the content and services offered through the web. In the first instance, it is important to ensure that customer needs are met by the website. Companies should seek to understand their customers, their abilities (and motivations) for using the web and their needs. Competitors also influence the design and functions of a website. In a particular industry sector, companies tend to try to match the web offering of their competitors in order to remain competitive. Intermediaries, especially web solution service providers, have significant influence over the design, development and operational functionality of a website. Good relationships are important between the client and the intermediary. Suppliers (depending on the nature of the operation) need to align with their customer’s technology. Either the supplier of the customer may have outdated technology which can hamper trading relations. This has been greatly improved with e-procurement systems via the web.



4. Explain how would you analyse demand for digital marketing services.

Environmental scanning and customer analysis (see sections from pages 50 to 60) is discussed in some detail in this chapter. The key elements to understand are customer behaviour, insight and segments using sources of data designed to analyse the online marketplace.

Customer behaviour analysis can be considered from two perspectives: (1) demand and gap analysis, which involves considering volumes of visitors and the extent to which each prospect converts to tactical and strategic outcomes; (2) Digital consumer behaviour, analysing the needs and wants of the customer and their online behaviour.

5. What is the difference between demographic variables and behavioural variables?

Demographic variables suggest any personal attributes that tend to remain static throughout an individual’s lifetime, or evolve slowly over time (such as age, gender, race, etc.), and these key elements of a consumers’ demographic profile have been found to influence online behaviour and Internet adoption.

Behavioural variables are any aspects of a consumer’s perceptions, beliefs and attitudes that might influence online behaviour, and, in particular, a consumer’s intention to shop can be defined as a ‘psychographic/behavioural variables’. Indeed, there has now been a significant amount of recent work to explore how the consumers’ character or personality might influence their online behaviour.

6. What are the main aspects of customer adoption of the Internet that managers should be aware of?

Customer choice, experience and influence. Figure 2.10 page 68 maps out how digital media can impact on the buying process of a new purchaser. Managers should be aware of all of the elements of this model and consider the implications of each stage. To assess customer adoption of the internet and digital media Managers should consider:

Where the customer is in the buying process

The communication objectives in the digital marketing plan and the implications of these for customer adoption

The implications of specific tactical digital marketing techniques.

7. What are the main changes to channel structures that are facilitated through the Internet?

• Direct selling – disintermediation.

• New intermediaries – reintermediation.

• Countering new intermediaries – countermediation.



8. How should a marketing manager benchmark the online performance of competitors?

You should have identified the need to distinguish between benchmarking criteria that define the company’s marketing performance in the industry and those that are specific to web marketing. Then consider structured elements within and organisation market, which have implications in competing marketing for example:

• Internal capabilities, such as resourcing, structure and processes

• Customer lifecycle: acquisition, conversion retention

• Financial performance. Available from About Us, Investor relations and electronic copies of company reports. This information is also available from intermediary sites such as finance information or share dealing sites such as Bloomberg (www.bloomberg.com) for major quoted companies.

• Marketplace performance. Market share and sales trends and significantly the proportion of sales achieved through the Internet. This may not be available directly on the website but may need to use other online sources. For example, a new entrant to European aviation,

• Business and revenue models. Do these differ from other marketplace players?

• Marketing communication techniques. Is the customer value proposition of the site clear?

Does the site support all stages of the buying decision from customers who are unfamiliar with the company through to existing customers? Are special promotions used on a monthly or periodic basis? Beyond the competitors’ sites, how do they make use of intermediary sites to promote and deliver their services?

• Services offered. What is offered beyond brochureware? Is online purchase possible? What is the level of online customer support and how much technical information is available?

• Implementation of services. These are the practical features of site design that are described in Chapter 7, such as aesthetics, ease of use, personalisation, navigation and speed.

Essay and discussion questions

1. Discuss the importance of the marketing environment to:

a) digital marketing success

b) digital marketing failure

The contribution of digital marketing activities is becoming increasingly important, as more market segments adopt major digital media channels. This has led to increased complexity of digital marketplaces. Therefore, it is critically important to understand the nature of the marketing environment in order to be able to manage, plan and succeed online. Understanding the micro environment (the operating environment – Chapter 2), which focuses on the players, which shape the immediate trading environment and the macro environment (Chapter 3), which consists of the external forces which can significantly affect a company’s success, is critical.

Using processes such as environmental scanning and analysis of the ‘clickstream’ and online market eco-systems companies can develop detailed understanding of the markets they are trading in. Ongoing monitoring can help to ensure success but ignoring the marketing environment can lead to digital marketing failure as opportunities can be missed, threats not anticipated and competitors ignored.



2. Internet access varies from country to country; explain the key factors which might influence different levels of access.

Analysis of the marketing environment (macro and micro) can provide insights into why adoption levels vary. Technological infrastructure, culture, politics and other macro- environmental influences can be explored in order to identify which factors are most influential. This discussion could be used as a case-based desk research exercise, whereby students are allocated a country and given the task of finding out more about the environmental factors that influence adoption rates. The research findings can then be considered evaluated and discussed in a plenary session.

3. Discuss how a digital marketing entrepreneur might identify market opportunities.

This topic can form the basis of a very open discussion, which enables students to think freely about the core aspects of starting a business online. From this chapter, the following topics should help focus on some of the founding principles of online businesses: market analysis, target market, channel structures and business models.

4. Evaluate the usefulness of research tools for assessing digital markets. Suggest the limitations of two search tools of your choice.

5. Perform competitor benchmarking for online services for an organisation of your choice.

Discussion should focus on the need to distinguish between benchmarking criteria that define the company’s marketing performance in the industry and those that are specific to web marketing; for example:

• Financial performance. Available from About Us, Investor relations and electronic copies of company reports. This information is also available from intermediary sites such as finance information or share dealing sites such as Interactive Trader International (www.iii.com) or Bloomberg (www.bloomberg.com) for major quoted companies.

• Marketplace performance. Market share and sales trends and significantly the proportion of sales achieved through the Internet. This may not be available directly on the website, but may need to use other online sources. For example, a new entrant to European aviation, easyJet (www.easyjet.com), has achieved over two-thirds of its sales via the website and competitors need to respond to this.

• Business and revenue models. Do these differ from other marketplace players?

• Marketing communication techniques. Is the customer value proposition of the site clear?

Does the site support all stages of the buying decision from customers who are unfamiliar with the company through to existing customers? Are special promotions used on a monthly or periodic basis? Beyond the competitors’ sites, how do they make use of intermediary sites to promote and deliver their services?

• Services offered. What is offered beyond brochureware? Is online purchase possible? What is the level of online customer support and how much technical information is available?

• Implementation of services. These are the practical features of site design that are described in Chapter 7 such as aesthetics, ease of use, personalisation, navigation and speed.



Examination questions

1. Identify and discuss potential changes to supply-chain relationships in the digital age.

Online suppliers and intermediaries are increasingly important to businesses wishing to access expanding online markets. This question is looking for student to explore issues that arise as a result of trading online. For example, web service solution providers are arguably a new intermediary in the supply chain, and bring unique expertise and knowledge, but in doing so there are also new and different types of hurdles to overcome when developing trading relationships. There are also a range of different types of intermediaries to consider.

2. Trading online increasingly involves developing multichannel strategies. Give three examples of potential channel conflicts that might arise from using the Internet. Illustrate your answer with examples.

Channel conflicts occur when services traditionally performed by channel partners, such as agents, resellers, distributors or retailers, are taken back by the manufacturer/supplier. This process is disintermediation or ‘cutting out the middleman’. Conflicts may be caused by the following:

• Direct sales (leading to reduced revenue for channel partner).

• Direct customer service (leading to less utilisation of channel staff).

• Direct delivery (leading to less utilisation of warehousing/distribution infrastructure and staff).

• Conflicts may also occur if channel partners are offering better services/offers to the manufacturer.

3. Choose a business activity sector and then suggest how important it is for business in the sector to trade online.

This question is looking for discussion of online market place analysis, with particular attention to how customers and competitors are using digital markets. For example, retailers (especially those operating on a national scale) need to trade online in order to compete with both physical and digital operators. Fast food takeaway businesses are increasingly operating online using intermediary platforms like Just eat.com, so even the smallest of food services business can face competition from online services.

Answers should also note that activity sectors use digital media to achieve varying objectives, and analysis of these objectives will help to determine the significance of trading online.

Answers may also consider the location at which online trading occurs. The options then are as follows:

• Vendor-side e-commerce (company sells from own website).

• Supplier-side e-commerce (to sell, the company has to visit its customer’s site to respond to requests for tender).

• Intermediary-side e-commerce (brokers who bring buyers and sellers together and offer e-commerce facilities on-site).



Representation could also be considered in terms of these services at different site locations:

• Corporate website for investor and partner information.

• Main open consumer website with transactional e-commerce facilities.

• Microsites or extranets within main sites with restricted access to key customers.

• Versions of the corporate or main site in overseas markets.

• Intranet website for internal marketing communications.

• Microsites within partner sites such as intermediaries and distributors.

By considering the nature of the trading interaction students can add more detailed analysis of trading opportunities and the significance of online trading for their selected activity sector.

4. Porter’s five forces model is well-established as a framework for analysis of the structure of competition in offline markets. Discuss the extent to which this model is valid in assessing online competition.

This question requires application of Porter’s model to the online trading environment but is also looking for areas which are not covered by the model. In this chapter, pages 69–72, Porter’s model is considered in the online context. This section is followed by a discussion of other ways of competitor benchmarking, which should also be included in the answer. Competitor bench-marking is a structured approach to comparing businesses and their use of digital media within a market, with the aim of identifying opportunities and threats. This analytical technique provides a structured approach to looking at various aspects of competitor behaviour, which go beyond Porter’s model: internal capabilities review; customer lifecycle; in and out of sector analysis; review of financial and non-financial measures; users experiences. Also refer to Table 2.2 in page 58 which explores the impact of the internet on the 5 forcers.

5. Imaging you are responsible for managing customer experiences (for a company of your choice). Discuss how you would integrate real-world and digital touchpoints.

This question focuses on understanding customers in digital markets. Figure 2.2 (Slide 24), is a good basis for students to answer this question. Showing understanding of the customer journey (which will be different depending on the target segment) provides an opportunity to show the integration between physical and digital touchpoints.



Answers may also refer to Figure 1.1 Customer lifecycle touch points discussed in chapter 1.

6. Imagine that you are about to set up a business online. Explain how you would go about investigating the micro-environment as part of your situation analysis.

To answer this question, students should consider each of the groups of actors in the micro- environment, for example, suppliers, customers, intermediaries and competitors. Then, discuss the tools of analysis discussed in this chapter (and later chapters if a more in-depth answer is required).

7. You are a digital marketing consultant. Suggest how you would advise a business that wants to improve its online exposure.

This question requires selection of topics to give structure to the answer (which could be quite broad).

A way to do this is to focus on advising a client on how to develop the Reach of their online activities. Marketing objectives , will be looking at raising awareness amongst existing and new market segments.

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CHAPTER 2...Digital media and the impact on the buying process. Slides 29. It is important consider the different stages in the buying process and it is worthwhile reviewing each of